Despite the growing interest and publicity about green buildings, the number of such developments in many emerging real estate markets is still trailing behind those of the US and Europe. Compared to the US, which currently has 5,646 LEED certified green buildings¹, the number of certified green buildings in most construction markets across the globe is still disappointingly small (Figure 1). For example Russia, which is the leading Eastern European construction market, has only one green building to date certified under LEED.  One reason for this is possibly the relatively lower public awareness and government support for green buildings. Particularly, government incentives for green buildings, such as tax breaks and cap-and-trade systems, provide significant stimulus for green building developers in the US. However, in the absence of government support, real estate markets have to create their green building segment and sustain its development based solely on the operational and pricing premiums provided by green buildings.

Figure 1. Number of buildings certified under LEED and BREEAM in selected emerging real estate markets – confidential BREEAM projects may not appear in the chart (source: U.S. Green Building Certification Institute and BREEAM databases^{1, 2})

The analysis in this article considers the formation of the green building construction segment in Russia, a market where there are currently no government incentives for green buildings and development is driven entirely by the private sector. We uncover some of the potential barriers to the growth of green buildings at the project and industry levels, and identify some of the challenges and their potential implications.

Green building challenges in emerging markets at the project level: organizational and learning barriers
In any construction industry, incorporation of sustainability into the building’s design and construction process poses additional challenges because it increases the project complexity. Consequently, the amount of effort for planning, coordination, and management for all project stakeholders significantly increases, often with higher indirect costs and longer construction schedules. However, in emerging markets these challenges are increased by the following:

Organizational challenges: Green buildings require an alternative project delivery approach that emphasizes front-end planning and partnering among project stakeholders (e.g., owner, designer, and contractor). This is because starting early in the design phase green building project teams must explore credit feasibility and compliance requirements under the selected green building standard, consider synergies among available credits, and encourage teamwork to fulfill compliance requirements or exploit credit opportunities that are usually cross disciplinary. While these front-end preparations and the integrated project delivery approach also pose challenges for project teams in well developed construction industries, the difficulties are greater in emerging markets because mindsets usually are not ready and industry practices are even harder to change. Long front-end project planning is typically perceived as a delay to the projects’ schedule rather than a necessary investment. As a result, fast track project delivery is a norm rather than an option that should be selected depending on the project’s circumstances, requirements and objectives.

Learning barriers: The second major barrier to green building development is the absence of standards in most emerging markets that take into account the local conditions. This forces project teams to select a major international green building standard to certify their projects (such as LEED or BREEAM International) that was developed for specific conditions of another country or region. Project teams that pursue certification under such adopted standards have to go the extra mile to understand and adjust to compliance criteria that underlie these standards to be able to demonstrate equivalence to the local standards. For example, in order for an international project to demonstrate compliance with LEED Site Selection Prerequisite 1 (on the control of sedimentation and erosions during construction operations), the international project team should understand the U.S. EPA National Pollution Discharge Elimination System (NPDES) that underlies Construction General Permit requirements for this prerequisite. International project teams should then demonstrate that the local practices implemented in the project are equivalent to these requirements before they can use LEED to certify their projects. At times, this is made more complex by conflicts between green building standard requirements and the local norms and regulations.

Green building challenges in emerging markets at the industry level: incomplete industry structures
In addition to specific organizational arrangements and project delivery strategies needed at the project level, sustainable growth of green building development also requires significant structural changes at the industry level. For example, sustaining green building development projects requires extensions to the existing industry services by new players and services (e.g., new service contractors like recycling companies or commissioning agency companies). Additionally it requires significant learning and adaptation among the existing industry players, such as developers, contractors, insurance companies, attorneys, project managers, appraisers, lenders and others, to integrate into this new real estate segment with services to meet specific needs.

A brief comparison between a (relatively) mature (U.S.) and emerging green building market (Russia) illustrates this need.  Currently, the Russian Green Building Council (RuGBC) is the driving force behind the green building movement in Russia, despite its short history. The RuGBC is the major platform on which key industry players join forces to promote green buildings in Russia. Following its establishment in May 2009, the Council quickly embraced the great majority of companies and organizations that are actively involved or interested in green buildings.  At the time we prepared this article the council had 94 members (70 corporate and 24 individual). However, a quick look at the distribution of RuGBC members as to the organization types in comparison to that of US Green Building Council (USGBC) reveals that currently the council’s members cluster in certain segments, while many other necessary segments are either significantly underrepresented or do not yet exist at all (Figure 2).

Figure 2. Distribution of USGBC and RuGBC members by organization type (RuGBC organization types are based on interpretation of the company information on their websites)

In Figure 2, product manufacturers, real estate developers, service companies and consultants constitute more than half of the corporate members of the RuGBC. They are followed by significant numbers of engineers, architects and architects/engineers, as well as some specialty contractors and designers. Compared to the members of USGBC, it is immediately noticeable that contractors and builders, who ultimately build green buildings, are significantly underrepresented. Another interesting difference is that educational institutions, government representatives, non-profit organizations, and professional trade organizations are largely absent. Finally, energy service companies, financial institutions, insurance companies and some others who are not directly involved in green building construction projects, but play a vital role in bringing these projects to market, also appear to be so far absent in the green building activities.

Absence of some players can be explained by the relatively short history of RuGBC and the green building market segment, and may change as this segment is represented by more projects. However, the absence of large contractors and builders points out a significant gap in the green building industry structure (e.g., currently there are no ENR Top International contractors active in Russia on RuGBC). Indeed, a survey conducted among general contractors in Russia by Ernst & Young’s Transaction Real Estate Advisory Services in Moscow, reveals that the great majority of the general contractors indicated that they have little or no information about green buildings or sustainable construction practices. They were also unable to indicate any preference between the major green building standards (LEED and BREEAM), due to lack of knowledge about them (Figure 2).

 Figure 2. Contractors’ awareness on green buildings and their preferred green building standard in Russia

Conclusions
While the Russian green buildings construction industry segment does not have to follow the same patterns of that of the U.S., as each market may develop its own structure and patterns, our analysis nevertheless highlights some of the challenges for green construction projects and structural gaps in the early days of development for the Russian green construction industry.

• In emerging construction industries, a paradigm shift in the form of partnership among project stakeholders should be promoted in how projects are delivered, while green building development should be supported through institutional, organizational and legal arrangements and practices (e.g., increased awareness for organizational requirements, green construction contracts, and incentives for integrated project delivery methods).
• Organizations that develop and maintain major international green building standards should intensify their efforts for adaptation of these standards to the local conditions, while maintaining their essence in order to encourage growth of sustainability in emerging construction markets.
• As for the Russian market, the interest among product and service providers for green buildings far exceeds that of contractors and builders. In a market in which design-build project delivery is one of the most common practices, the current absence of contractor and builder involvement in the green building movement may become a significant obstacle in bringing such certified projects to successful completion.
• In the emerging Russian green building market (and possibly other similar emerging markets), the current players cluster in a few segments, while industry-wide green building support services are currently lacking. For example, there are few or no RuGBC member companies specializing in recycling, commissioning, water efficient irrigation systems, green roofs, and other specific services that typically play an important role in green building certification. This provides strategic opportunities for new or existing market players to provide this market segment with services that can fill these gaps.

References:

[1] US Green Building Certification Institute (GBCI) database as of 8 November 2010 (http://www.gbci.org)

[2] BREEAM database as of 9 November 2010 (www.breeam.org)

About the Author
Kagan Ceylan is Manager with Ernst & Young in the Transaction Real Estate Advisory Services group in Moscow, Russia. Kagan holds a Master of Science degree in Civil Engineering with a focus in water resources and environmental engineering, and a Doctor of Engineering degree from Texas A&M University. Kagan is a certified LEED Green Associate and BREEAM International Assessor. He is also a PMI Project Management Professional (PMP) and a Member of the Royal Institute of Chartered Surveyors (MRICS) of the U.K.. He can be reached at Kagan.Ceylan@ru.ey.com or at www.linkedin.com.  Another article on green buildings by the author is “BREEAM and LEED: Which green building standard is more energy efficient?” and may be found at http://www.amcham.ru/_images/upload/AmCham90.pdf.